5 unique Taobao app features that drive its mobile sales

Picture search function

Imagine you are in a store looking at a really nice watch that would be just perfect for you. Unfortunately, you can’t be sure that you are getting the best deal on the price. That’s when Taobao app picture search comes really handy. All you have to do is snap a photo directly from within the app, or load previously taken image, and within seconds Taobao app displays the matches from its vast database.

This powerful functionality enables users to instantly compare online prices while browsing for goods in a physical store or, practically, anywhere they come across something they would like buy. In most cases, Taobao prices will also be lower which, in effect, threatens to turn some traditional retailers with brick and mortar stores into nothing more than showrooms.

Package tracking system

All online marketplaces have some type of shipment tracking system but only Taobao app takes it all the way to the new level. As soon as a seller ships the product you have just bought, it will be tracked at every point along its journey regardless of what delivery service was used.

Tracking packages is being updated within minutes which makes it really easy to figure out where it is and when it will be delivered. Finally, when it arrives, Taobao app will send you a push notification and, in some cases, SMS message as well.

Alipay payment integration

Alipay, Taobao payment system, is the principal technological enabler of the platform and the integral component of Chinese ecommerce landscape. Alipay provides an extremely easy and secure way to pay for purchases both online and offline.

Practically, everyone with a smartphone and a bank account in China has Alipay account which is also widely used to pay for purchases in physical stores, restaurants and even in the government offices. When used within China, Alipay doesn’t charge any fees except for very large transactions. Paying with Alipay is also very secure, convenient and fast. In effect, Alipay acts as a personal bank account in and of its own, complete with monthly statements and spending breakdowns.

Although, some Taobao vendors still accept cash on delivery, it is hard to imagine Taobao achieving such popularity without Alipay being its integral part.

AliWangWang instant chat

Chinese online consumers overwhelmingly expect Taobao vendors being able to answer questions and reply to inquiries within the shortest time possible. Also, the vendors realize that responding to inquiries from potential buyers in real time significantly increases chances of closing the sale. This is why Taobao integrated live chat app called AliWangWang, has become another important component of Taobao platform.

Customers can initiate chat sessions with sellers directly from the mobile app while sellers can use AliWangWang as a stand-alone app running on mobile or computer. It offers an easy way for both parties to communicate and not only serves as an effective pre-sale tool but also goes a long way in building trust.

Push notification remarketing

Almost all mobile apps use push notification in one way or the other. What makes it different in Taobao case is that the push notifications are tailored to each user and are made relevant to them. The way this is done is by taking into account users’ product search history, content of their wish list and past purchases in order to deliver tailor made messages that are most likely to pique their interest.

Also, unlike in the case of other apps, users tend not to disable push notifications from Taobao on their phones because they don’t want to miss messages related to product deliveries or any issues related to their purchases in progress

Mobile app makers are well aware that sending too many push notification can quickly annoy users. This why Taobao typically limits them to no more than once per day.

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Basically, anything in the digital world that brings customers to the physical stores or makes them buy products and services that are traditionally sold offline can be classified as O2O.

According to the recent report by McKinsey on O2O in China, it has been growing the fastest in 3 areas: travel, mobility and dining services:

China O2O in travel sector

McKensey’s data indicate that travel is one of the most popular O2O categories used by 36% of O2O consumers nationwide and 56% in Tier 1 cities:

This segment is lead by companies like Qunar, fast growing Baidu online travel service as well as Ctrip, another hugely popular site. Customers also expect O2O travel service to cost less than the traditional ones putting more pressure on providers

China O2O in dining sector

This segment was indicated as the second growing O2O sector. Convenience and discounts stand out as the most important reasons why consumers choose to use O2O dining services.

In contrast with travel sector, here consumers were actually prepared to pay premium for the service and indicated food quality and safety as their primary concern.

China O2O in mobility sector

Mobility O2O mainly refers to taxi hailing apps such as Uber and Didi-Kuaidi. Both companies have been at each other’s throat to gain market share in this rapidly growing market which we covered in an earlier post about Uber in China. Currently, Baidu is the major backer of China Uber while Tencent and Alibaba are behind Didi-Kuaidi.

Consumers in this sector appear to be the least sensitive to the price of O2O mobility services than to the price of other O2O services. This has probably something to do with the fact that the prices in this segment are already extremely low.

What are the main reasons behind the strength of O2O in China?

#1 Sheer number of smartphones

Large number of smartphones in China is the primary reason for O2O services getting a strong foothold. There are estimated 563 million smartphone users in 2016 representing more than a quarter of users worldwide.

#2 Have we mentioned smartphones?

Another factor in favor of O2O in China is the fact smartphones has long become the primary device of getting online for the majority of Chinese, beating desktops and laptops 2 years ago. Since large part of O2O’s appeal is location, mobile is a natural fit.

#3 Mobile payment systems

Proliferation of secure and convenient mobile payment systems such as Alipay or WeChat wallet has become the industry enabler. In this regard, China is well ahead of most other countries.

#4 Everyone loves QR

QR codes can be used in many creative ways to facilitate O2O based connections and, incidentally, they have been extremely popular in China. While QR codes have been declared dead in the West on more than one occasion, they have been embraced in China and popularized by apps like WeChat.

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There are many things that make Jack Ma unique among China’s business elite, such as his humble upbringing and lack of political connections from the start. Also, as opposed to most founders of successful internet and tech companies in China such as XiaoMi (Lei Jun), Tencent (Ma Huateng) or Baidu (Robin Li), Jack Ma never had any technical background or training.

10 interesting facts about Alibaba’s founder Jack Ma

#1: Pivotal friendship

The pivotal moment in young Jack Ma’s life was meeting and developing friendship with Australian teenager David Morley and his father Ken Morley. They have taught him English and even bought his first apartment. In fact, the English name “Jack” was also given to him by his Australian friends who couldn’t pronounce his Chinese one.

Jack Ma and his Australian pen pal David Morley in Hangzhou

#2: Eye opening trip

In 1985, Jack has spent a month-long vacation in Australia, a trip that, according to him, has changed his life. Here is what he said in one of the interviews: ” Before I left China, I was educated that China was the richest, happiest country in the world. So when I arrived in Australia, I thought, oh, my God, everything is different from what I was told. Since then, I started to think differently.”

#3: Education

Jack Ma couldn’t pass the exams to get into more prestigious universities and had to settle to one of his home city’s “worst” ones – Hangzhou Teachers University.

#4: Job search

After graduation, Jack Ma was having hard time finding a decent job and was even turned down by Kentucky Fried Chicken. Eventually, he found a teaching position that only paid 100 to 120 RMB ($12-15) a month.

#5: Meeting the internet

Next pivotal moment in Ma’s life was a trip to Seattle as a part of trade delegation in 1995. This is where he first experienced the internet. At that moment he realized that whatever he was going to do in the future has to be about the internet.

#6: First business venture

Almost immediately after his return from US, Jack Ma, along with his wife and a friend, raised $20,000 to start an internet company dedicated to making websites for businesses. It was called “China Yellow Pages” and within 3 years it grew to a $800,000 company at which point he quit and returned to Hangzhou to found Alibaba.

#7: Founding Alibaba

Alibaba was founded in 1999 as China-based business-to-business marketplace site that connects Chinese manufacturers with Western buyers. The original investment was just $60,000 from 18 friends that Jack gathered in his apartment to pitch the idea.

#8: First years of Alibaba

By the end of 2002, Alibaba was only breaking even having made almost no profit. The focus was put towards improving the product and continuous learning cycles. Today, the company serves more than 79 million members from more than 240 countries and territories

#9: Tai Chi

Jack Ma is Tai Chi enthusiast having practicing it since 2009. He often hires Tai Chi masters to teach regular classes to employees in Alibaba at which the attendance is mandatory. He hopes to be remembered as Tai Chi master foremost, rather than as a founder of Chinese largest ecommerce firm.

#10: Conservation work

Jack Ma is also a prominent supporter of conservation efforts in China and around the world. He is dedicating full-time attention to his new role as Board of Trustees Chairman for the Conservancy’s China program and has recently made a $5 million gift to the fund.

If you’d like to learn more, get a book by Duncan Clark about Jack Ma: Alibaba: The House That Jack Ma Built.

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In the first half of 2018, more than 85 percent of all Chinese ecommerce sales in retail trade were shared by ten major players on the market. Recently, the market witnessed the growth of several smaller e-commerce retailers such as Pinduoduo and Gome. However, Alibaba consistently occupies the highest place over the years, with a 58.2 percent share of all e-commerce retail sales in 2018.

Alibaba.com was originally launched in 1999 as a B2B e-commerce portal to connect Chinese manufacturers with foreign buyers. In 2003, the service expanded to C2C with the launch of the largest ecommerce marketplace Taobao and in 2008 a B2C online retail platform Tmall, which are the current market leaders in their respective business segments.

In the fiscal year ending March 31, 2018, the annual revenue of the Alibaba Group amounted to approximately 39.9 billion US dollars (an increase of 58 percent) with a net result of 9.79 billion US dollars. The annual revenue of the core commerce company rose by 60 percent to around 34.12 billion US dollars, the highest sales growth since the IPO. In 2018, Alibaba retail markets recorded 28 percent annual growth in total gross commercial value (GMV), driven by Tmall and its robust physical goods, GMV growth in clothing, FMCG, household appliances and consumer electronics categories. The following graph compiled by Statista illustrates the current state of Chinese ecommerce sales in 2018.

Chinese ecommerce sales in 2018

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Alibaba still dominates Chinese ecommerce with Taobao for C2C and Tmall for B2C. The other major player in B2C space is JD.com, currently this company holds about a quarter of the total market.

WeChat Weidian is another newcomer that is quickly gaining traction in Chinese m-commerce but it is not featured in this infographic due to lack of available data.

Other platforms in China ecommerce landscape are significantly smaller with market share in single digits. They also tend to be more specialized – for example, Suning and Gome mainly sell appliances and electronics while Vancle is a clothing branded retailer.

China ecommerce landscape

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In the last few years, Chinese Singles’ Day or Guanggun Jie (光棍节) has become the biggest China shopping festival. This is the day when young people celebrate the fact of being single. The date, November 11th (11/11), is chosen because the number “1” resembles a single individual. This festival has become the largest offline and online shopping day in the world with ecommerce operators like Alibaba and JD (JingDong) reaching new heights every year.

This year was another record settings one. For example, during the festival, Alipay has registered processing 256,000 payment transactions per second, reaching unprecedented number of 1.48 billion transactions in 24 hours. Another remarkable fact is that 90% of purchases were done via mobile app rather then from PC.

The festival has also resonated globally with more participating locations outside of China than ever before. Alizila, the Alibaba news aggregation, listed top 5 Countries/Regions Selling Cross-Border to China by GMV (Gross Merchandise Volume) were:

1. Japan
2. United States
3. Australia
4. Germany
5. Korea

Top 5 Countries/Regions Buying Cross-Border from China by GMV were:

1. Russia
2. Hong Kong
3. United States
4. Taiwan
5. Australia

Here is the infographic on the largest ecommerce platform, Alibaba, that the folks from Alizila have put together:

China shopping festival 11.11.2017 in numbers:

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China is one of world’s fastest urbanizing society in absolute terms. Although decreasing every year, approximately 45% of Chinese still live in rural areas which comes to about 600 million people. 

Taobao villages refer to the entire communities of rural food producers who turn to Taobao to sell their produce. As defined by AliResearch, Alibaba’s research division, a “Taobao Village is a cluster of rural e-tailers where at least 10% of village households engage in e-commerce or at least 100 online shops have been opened by villagers; and total annual e-commerce transaction volume in the village is at least RMB 10 million ($1.6 million)”.

Alibaba is keen on further developing Taobao villages

Based on 2014 AliResearch’s study, the number of Taobao villages have exceeded 70,000 and provided 280,000 job opportunities in rural China that year. Since 2014, the number of such communities only continued growing. Alibaba says that it plans to invest $1.6 billion in the effort to spread rural ecommerce through 2019, with the ultimate goal of opening 100,000 Rural Taobao centers.

Government is also interested in connecting more rural population to ecommerce economy in the hopes that this will stem the flood of villagers moving to large cities. Rapid increase in migrant population is bringing a large number of social problems giving quite a bit of headache to local authorities. If rural population would see more opportunities back home, less will choose to move to the cities.

In accordance with this approach, the ministries of commerce and finance have allocated $300 million to 200 rural counties to spend on warehouses, training and anything else that might push the project forward. According to Sun Lijun, general manager of Rural Taobao, “when we send in one Alibaba employee, the government deploys 10 people.”

There are stories about farmers in their 60s opening ecommerce stores and rapidly growing their online businesses while pulling entire communities out of poverty. Such was the story of  Luo Bishui who used to just grow potatoes, but now he is opening an eight-room guesthouse for tourists. This also shows the potential beyond just selling produce online but also developing ecotourism in country side.

Taobao villages also tap into growing demand for healthier organic produce at affordable prices. By moving such sales online, sellers no longer need the middle man and can now reach this market directly. There is even a growing trend of people moving from the cities back to their home villages to develop online businesses. Although, they often earn less, money go much further in rural areas than in the cities.

Some of rural Taobao sellers manage to do even better. Liu Dongdong, a Yonghe native and then university graduate working at a building and decorating firm in the provincial capital of Taiyuan has decided to move back to his poverty stricken village to setup an online business of selling Chinese red dates. Even in the off-season, he now makes 20,000 yuan (U.S.$3,000) profit a month from selling red dates online, far more than he made working in Taiyuan.

When villagers make money on Taobao, they also tend to use the platform to buy supplies, such as fertilizer etc. This, in turn, creates a rural ecommerce ecosystem effect, driving the demand side of the market. Once rural population becomes more accustomed to do business online, they continue using Taobao for all their other shopping needs, something that Alibaba is keen on promoting.

Alibaba is not alone in their efforts to develop rural ecommerce market. JD.com, Alibaba’s main competitor, sent a team on a six-month tour of the country, showing locals how to buy products on its site.

One of the main obstacles to Taobao villages development is the so called “digital divide”. Broadband access is still limited in rural areas as opposed to the cities. Majority of villages still have only 1% of households connected to broadband. Internet penetration in rural China is only 30%, compared to over 60% in urban areas.

In response, central government has set a target of bringing unlimited broadband to 98% of China’s administrative villages by 2020. This will, undoubtedly, help to grow China’s rural ecommerce market exponentially.

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Baidu is the Chinese version Google. It is the largest search engine and is, in terms of business interests, as diverse. Alibaba is the world largest ecommerce operator that runs Taobao and Tmall, two main shopping sites in China. Tencent is the company behind WeChat, the most popular mobile based social app, as well as QQ, the messenger service.

All three China BAT giants, however, almost never get along. In fact, the war between them often comes at the expense of users’ convenience, although everyone accepts it as another fact of life in China.

For example, Baidu blocks search results from Alibaba ecommerce sites. Tencent doesn’t allow users to open Taobao and Tmall links in WeChat browser. Alibaba blocks rival payment systems on their sites and the list goes on.

Here is our latest infographic on those three companies.

China BAT: Baidu Alibaba Tencent

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Chinese online shoppers also grew to trust online payments and the vast majority is quite comfortable using it to pay for purchases on the internet. Alipay, the most popular Chinese online payment system by Alibaba, holds the largest market share. It powers two largest ecommerce platforms, Taobao and Tmall and is extensively used in large number of third party applications and platforms.

Main Chinese Online Payment Systems

As of the end of 2015, Alipay accounted for almost 70% of the entire Chinese online payment market. It is fair to say that almost everyone in China with a cellphone and a bank account has Alipay account which is somewhere around 700 million.

Alipay transaction fees are also much lower than PayPal. In general, cross border transactions are the most expensive but it depends on the type of contract a merchant has with Alipay as well as the volume.

The second largest online payment system is TenPay developed by Tencent. In fact, TenPay also powers WeChat Pay, the payment system used by WeChat users. Thanks to this app’s explosive growth, TenPay was able to increase its market share quite significantly during 2015 to about 20%, primarily on the account of Alipay.

WeChat Pay is now extensively used for many types of transactions. With web payments, customers simply scan the QR Code on their mobile phone with WeChat to make a payment to a website. For mobile users, WeChat Pay is used for payment within WeChat Official Accounts to enable sales from within the app.

Both Alipay and WeChat Pay are increasingly used for offline transactions at traditional stores and restaurants in China and even abroad. A customer simply opens the app in order to allow the merchant to scan their QR code with a special scanner or, often, just another smartphone. As many phones now have fingerprint scanning sensor, placing a finger on it is all it takes to complete a transaction (otherwise, a customer has to type in their secret code on their phone). Alternatively, a customer can scan a merchant’s QR code to send the payment but this way is becoming less common at the traditional point of sale.

Since those type of transactions are free to customers, Alipay and WeChat Pay serve as substitutes for carrying cash or credit cards and offer both security and convenience.

Alipay and TenPay (WeChat Pay) account for almost 90% of current mobile payment with other players, such as Lakala, JD wallet, YeePay, 99Bill and others quite far behind.

As for foreign alternatives, PayPal was not able to get any meaningful user base so far and is unlikely to do so in the future. Apple Pay still barely registers in China mobile payment market, although it is still quite new.

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As this infographic illustrates, increasing number of Chinese online shoppers now put higher value on branded goods over lower priced generics. In fact, sales of not branded goods have dropped to 35% in 2014 compared to 42% in 2011, while sales of branded products have increased to 65%. This trend is certainly good news for foreign brands targeting Chinese online shoppers.

At the same time, the rise of branded ecommerce in China hasn’t been affecting every brand equally. In fact, the share of top brands sales has seen a slight drop of 2% while the sales of lesser known brands increased by 4%. Regional and pure online brands have shown the largest increase of 6%.

How to succeed in branded ecommerce in China?

The infographic gives the following advice:

Beginners:

• Build standalone online marketing and sales systems, supplemented with a small digital sales team.

Intermediates:

• Integrate online and offline channels to improve consumer engagement;
• Rely on full-function digital team or an integrated team for online and offline channels;

Experts:

• Disrupt established business models to create innovative, consumer-led products and experiences;
• Create project teams focused on multiple consumer segments.

Here is infographic:

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